Do it now!
Don’t delay – look after your family with a life insurance policy...
All parents want to see their children grow up and flourish. the thought of not being there and the impact that would have on them is almost too unpleasant to bear. one in 29 children lose a parent before they grow up. i was one. and on top of the horrendous grief, as prosaic as it sounds, there are often serious financial considerations, too.
when i meet a new parent at my tv roadshows they often ask me about saving for their children. i always ask if they’ve got life insurance. it is a crucial but often overlooked financial consideration. we need to override the emotion and examine it clinically.
life insurance is an insurance policy that’s designed to pay out a lump sum when you die – usually either to clear debts, or provide money to live off. there are three main types of policies, other than investment type life assurance plans:
1 Level-term life insurance
this pays out a set amount if you die during a set time.
2 mortgage decreasing-term
life insurance this aims to clear your mortgage. so as your debt drops with time, so does the amount it pays out. 3 whole of life insurance the policy is mostly about mitigating inheritance tax costs.
Make your choice
the cheapest way to protect your family is with level-term
life insurance. you pay a monthly premium and it pays out a set amount if you die within a set period of time, for example £200,000 if you die within the next 20 years. the more cover you get and the longer the term you want, the more you’ll pay. and as the payout is fixed, then providing the company is reputable, it’s usually just a case of the cheaper the better. a rule of thumb is to cover 10 times the main breadwinner’s income. the aim is to have enough cash to cover the lack of income if you’re gone.
aim for a lump sum that’s enough to repay any debt, and provide for outgoings your dependants would have. shortening the term cuts the cost, though you’d want cover that lasts until children have finished education.
Get online
Slash £££s off the cost of level-term insurance. never think of life insurance as a monthly cost, you may be paying it for 20 years, so every £1 a month cheaper is a saving of £240. to find the cheapest policy see mse.me/ lifeinsurance, but in brief…
✱ comparison sites can be over-expensive. they may find you the cheapest policy, but they also take a whack of commission from the insurer.
✱ if you don’t need advice, use a discount broker like cavendishonline.co.uk or moneyworld.com. here you pay a fee of £25ish, but they rebate all the commission so it can be £1,000s cheaper.
✱ if you do need advice, use an advisory broker or independent financial advisor. Find one at unbiased.co.uk and vouchedfor.co.uk.
✱ write it in trust to protect dependents from tax. if you die, the payout forms part of your estate and would be liable for inheritance tax. however if, when getting out a policy, you write it ‘in trust’ to your dependents, it is paid directly to them, so inheritance tax isn’t due.